If federal student loans aren’t enough to cover your college expenses, applying for private student loans may be your next move. While the application process is fairly simple, there’s some work to do before you apply. Here’s what to expect as you apply for a private student loan.
How to Apply for a Private Student Loan in 5 Steps
1. Research and Compare Potential Lenders
Unlike federal student loans, where every approved applicant gets the same interest rates and terms, your credit and other financial info will determine what kind of rates you’re offered on a private loan. Each lender sets its own terms of the loan, including how you can repay it later.
That means that some lenders will offer you a better deal than others, so it’s important to shop around and compare your options. Most private lenders allow you to prequalify for a loan online; after you submit some basic information about yourself, you can see your estimated interest rates and other loan details. After doing this with multiple lenders, you can narrow down your options before submitting a formal application at your top choices.
2. Decide Which Loan Terms Work Best for You
Choosing a private student loan isn’t just a matter of picking the one that comes with the lowest interest rate. Private loans typically come with several terms you can choose from. For example, you can choose between fixed or variable interest rates — fixed rates stay the same for the entire life of your loan, while variable rates can change based on certain market indicators.
You can also usually choose how long your repayment is. A 10-year term is standard, but some lenders offer repayment options lasting five to 20 years. You can also often choose your repayment structure: You might have the option to defer all payments until after you graduate or start making payments while in school.
All of these things will affect the total cost of your loan (significantly, in some cases), so it’s worthwhile to crunch some numbers before making your final decision.
3. Review Eligibility Requirements (and Consider a Cosigner)
While federal student loans tend to have fewer eligibility requirements, that’s not the case for private loans. General requirements you’re likely to see include:
- 18 years or older
- High school graduate
- Enrollment in an eligible college at least part-time
- U.S. citizenship or permanent residency
In addition, you’ll need to be able to pass certain financial benchmarks to be approved. All lenders have different requirements in this area, but you should have healthy credit and a stable income that’s high enough to repay the money you borrow. The better your credit and income, the better interest rates and terms you’ll be offered.
These requirements can be tough for a student to meet, and in those cases, it can be useful to add a cosigner to your application. The student remains the primary borrower, but if they can’t repay their loan, the cosigner is legally required to do so. Cosigners are usually parents or other trusted adults, and for the best results, a cosigner should have strong credit and healthy financial history.
4. Submit an Application
You’ve done the research, compared your options, and narrowed down your choices to a handful of lenders. Now it’s finally time to submit a formal application.
This can be done online for most lenders and can take less than 30 minutes. However, you will need to provide information about yourself (and your cosigner, if you’re including one). Common information you’ll need includes:
- Personal data such as your name, birthday, Social Security number, and contact info
- Income and employment details
- Your monthly rent or mortgage
- Any significant assets in your name
- Information about your school, such as when you graduate and how much it costs to attend
You may also need to submit supporting paperwork to prove the information you input is correct. This can include pay stubs, tax returns, lease agreements, and more.
Once you submit your application, it’s a waiting game. Some lenders offer near-immediate approval, while others may take a few days to give the final word. If there’s a complication with your application, it may take several weeks to reach a decision and you may be asked to submit additional information before your application can be processed.
5. Accept the Terms and Sign Off on the Loan
Once you’re approved, you should receive paperwork detailing all the loan’s terms and rates. Confirm everything is correct before signing the final agreement on your loan.
After you’ve signed the necessary paperwork, your lender and school should take care of the rest. The money is typically disbursed directly to your school, and if there’s money left over you’ll receive the rest in the form of a refund check. You can use the leftover money for additional school costs such as textbooks or a computer. However, this is still money you have to pay back, so if you don’t really need the extra cash, consider returning it to the lender to jumpstart repayment on your loan.
4 Key Takeaways
- Compare private lenders and see which offer the best deals for your situation
- Decide what kind of interest rates and loan terms would fit your needs
- Make sure you can meet general eligibility requirements before applying, and consider whether or not you need a cosigner to qualify
- Submit a formal application and supporting paperwork